Dividend growth investing explained – infographic

How to build a cashcow to get growing passive income! Because that’s really what it is!

The dividend growth investing strategy is simple and robust. As soon as you know and understand the steps and how to put them in place, the only thing you then need to do is to repeat those steps again and again and again until rich enough for retirement or even early retirement!

Imagine yourself owning all of your time and cashflow pourring out of your cashcow to pay for your expenses! You could do what you want, when you want it.

This is what this strategy is all about. It’s about retiring with a stream of growing passive income and better, it’s about making it happen!

This is not a get-rich-quick scheme! It’s more like a get-rich-slowly strategy, a one brick-at-a-time technique to build your way to riches!

Dividend growth investing infographic

Step #1 Spend less than you earn

Typically, dividend growth investors recognize the power of frugality. The more they save, the more money they can put to work as soon as possible. Because, you see, this whole strategy is based on compounding interest and there are 3 important variables that count here :

1) the money saved and invested;

2) the lenght of time you have to let it compound;

3) the rate at which it will compound.

Out of these variables, time is the most important. The sooner you start the better results you’ll get and the less you’ll have to save on every paycheck. Then, it is the money saved and finally, the rate at which your money is put to work.

You can start small…

You don’t have to start saving 40% of your income starting tomorrow. Almost every investors started with small amounts. Forty or fifty bucks per week is a good start!

Anyway, as soon as you’ll see the results, if you’re like me and most of the dividend growth investors in this community, you’ll want to find ways to save more, invest more and get more passive income from your dividend machine simply because it works and also because it’s addictive!

Earning more?

Earning more is also an option, but it’s very difficult to increase your wage. Competition is fierce and this can even require you to go back to school for years. Earning more is not an obligation for this strategy to work. In fact, what’s cool about this strategy is that you don’t have to make tons of money to make it works for you. Any average joe out there can apply it at their scale! In fact, one of the most interesting blogger in this community has achieved great success while working in a car dealership and earning an average salary. The fact is you don’t need to be making 200 grands a year to make it work!

See, all that money saved, all these hundreds bucks bills that you put to work are like little soldiers. They work for you, they get a paycheck and this paycheck goes 100% in your wallet, plus they get extraordinary raises that you probably will never get with your current job. And, you know what, all the raises they get are yours too! 100% of them!

Based on many studies out there, most of the stock market return has been a direct consequence of dividend and dividend growth! Lowell Miller in his book The Single Best Investment, has a great chapter about it.

Why?

Because dividends are the birds in the hand. They are real money that you can reinvest or spend. They are the proof of the real success of a company! If a company can make a check every quarter to all of their shareholders for years, and if that company can also raise the dividend check every year, then it must have and make money!

A dividend growth investor only invest in high quality companies having a sustainable competitive advantage and paying growing dividends year after year to build their passive income compounding machine!

Step #3 Get your dividend paycheck!

Depending in which company you invest your money, you will receive your dividend paycheck every month, every quarter or every year. Most of the companies out there pay a quarterly dividend.

This is where is becomes interesting. You will receive these paycheck without doing nothing more than waiting! This is pure passive income! The work you had to do was saving money, investing that money into buying a piece of a great company and then wait for the dividend to be deposited in your account.

Shares are part-ownership of a company

The employees of the company did all the tough work for you to make the company make a profit. You are entitled to the profit because you are in fact, owner of a piece of this company!!!

One day, you’ll live off of these “paychecks” but for now, you don’t want to spend that money right away!

Step #4 Reinvest with intelligence

On every paycheck you’ll receive from your day job, you’ll save part of your salary to invest in quality companies paying growing dividends. This is great but, what really spices it up is that you will also reinvest the growing dividends you’ll receive for years! This adds leverage!

Dividend reinvestment plans (DRIP)

There are two ways to do that. First, you can setup a dividend reinvestment plan and then the dividend you’ll receive will automatically buy new shares of the same company forever or until you stop the DRIP.

Since the company is great (you already analyzed it and determined is was a true champion), it is not a bad decision to reinvest your money there. But, most dividend growth investors prefer allocating the money themselves as I do because we know that price varies a lot and sometimes shares are overvalued, sometimes they are fairly valued and other times they are undervalued or “on sale”.

Nobody wants to buy when price is over-inflated!

Be your own money allocator

I seek to invest my hard-earned money in undervalued or fairly valued stocks at any time and avoid overvalued stocks. While this is more an art than a perfect science, there are tips and tricks to follow to make sure you don’t overpay for a stock and to make sure that the stock you are buying is a great one.

Benjamin Graham used to say :

Price is what you pay, value is what you get!

That’s something we should never forget.

Most dividend growth investors in this community allocate money by themselves. It’s part of the fun.

Step #5 The hidden key : the dividend raise!

Dividend raises are the icing on the cake. Every year, great companies with the policy of paying a growing dividend will usually increase the dividend at a rate a lot higher than inflation.

This does not only protect my income from inflation but it also makes it grow faster than inflation!

Plus, and that’s where the hidden key is, dividend raise pushes the price of the stock up! More dividend generally equals more interest in the stock! So this adds extra-protection to the capital and also spices up the total return you get.

Final notes…

Brokers want you to trade all the time because they make a commission on every trade. While in my own opinion, the best strategy out there seems to be buying the stocks of a quality company paying a growing dividend, keep the stock as soon as this remains true and reinvest the dividend in other great company or in the same company. Then, repeat the process until rich enough to retire!

Dividend reinvestment coupled with dividend raise, plus the fresh money you’re going to add on every paycheck will make this become a compounding machine throwing tons of money at you forever.

You want to know more about the system?

These are the greatest books on the subject and I highly recommend anyone interested in dividend growth investing to read them all :

About The Author

Hi, my name is Allan. I'm 33 years old and I live in Canada, one of the best but one of the coldest country in the world! I'm the masked blogger. Like you I'm a modern slave, prisoner of a 9@5 job in Corporate America. But, I have an escape plan. I will retire before my 45th birthday over my passive income. This is a dream that is so powerful that I will make sure it comes true. To build my wealth, I invest in undervalued dividend growth stocks. Follow me! We will retire early! We will retire rich!

Disclaimer

I am not a licensed investment advisor. I am not an investment professional. I am not a tax professional. I am not a stock guru. I’m a plain and ordinary man pursuing a dream. I want to be financially free. I truly believe I will. But I might be dead wrong!
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